A class-action settlement against Horizon Blue Cross Blue Shield of New Jersey over delayed health-care payments to doctors won appeals court approval on Wednesday, including $4.7 million in legal fees and costs.
However, the 10-year-old litigation, Sutter v. Horizon Blue Cross Blue Shield of New Jersey, A-5725-09, might not be over, as the doctors and medical groups who objected to the deal are likely to petition for Supreme Court review.
The objectors challenged the settlement because it paid nothing to the class of more than 18,000 doctors and arguably too much to the firm of Mazie Slater Katz & Freeman, which brought the suit.
Superior Court Judge Stephen Bernstein in Essex County awarded $6.5 million in fees and costs in 2007 but slashed $1.8 million after a 2009 remand demanded a closer look at how much the deal was worth to class members.
The complaint, filed by name plaintiff Dr. John Ivan Sutter in 2002, accused Horizon of “repeated improper, unfair and deceptive acts and practices … which [were] designed to delay, deny, impede and reduce compensation” to physicians treating Horizon insureds. That and other practices allegedly violated state law and the insurance company’s contracts with doctors. A class was certified in 2004.
The settlement was all reforms and no money. Horizon agreed not to reduce reimbursement rates more than once a year, to forgo seeking recoupment of overpayments more than 18 months old, to provide a schedule of fees and to allow participating physicians to close their practices to all new Horizon patients.
The settlement also obligated Horizon to give 90 days’ written notice of material adverse changes to contract terms and permitted doctors unhappy with the changes to terminate the contract. And Horizon was barred from revoking a “medical necessity” determination on a precertified claim and from using “most favored nations” clauses to extract better terms than other carriers.
The deal also provided for up to $6.5 million for legal fees and litigation costs.
A report by plaintiffs’ economic expert, Teresa Waters, Ph.D., an assistant professor at the University of Tennessee, valued the settlement at $39 million.
Almost 1,000 doctors excluded themselves from the class and six objected. A dozen medical societies, representing pediatricians, orthopedists, radiologists and other medical practice areas, were not allowed to intervene but were permitted to appear and argue against it.
The objectors groused that class members would receive no payment, that the reforms were illusory because they required nothing more than what Horizon was already required to do by law and by contract, and that the legal fees were grossly excessive.
In 2007, Bernstein approved the settlement as fair and the fees — amounting to 16.7 percent of the Waters’ $39 million valuation — as reasonable.
Two years later, the Appellate Division Judges Lorraine Parker, Dorothea Wefing and Laura LeWinn left the settlement in place but remanded for a testimonial hearing, which Bernstein had not allowed, and for reconsideration of the fees. They held that Bernstein incorrectly applied a percentage-of-recovery analysis without requiring a detailed affidavit of services or determining the hourly rate.
Following a five-day hearing on remand, Bernstein once more found the settlement fair. He relied on Waters’ revised valuation of $35 million, roughly $1,747 per doctor, which was based on a survey of how much doctors would save because staff would not have to spend so much time dealing with Horizon claims. The objectors did not present their own expert but cross-examined Waters.
Applying the lodestar method this time, Bernstein cut the fees to $4.7 million, including about $600,000 for out-of-pocket costs. He found the 5,628 hours billed by Mazie Slater were warranted and approved billing rates of $550 per hour for partners Eric Katz and David Mazie and $100 for law clerks, augmented by a 35 per cent multiplier for the difficulty and risk of the case.
On the appeal decided Wednesday, the objectors added a new gripe: that Bernstein should have taken into account the April 20, 2008, settlement of a nationwide federal class action against Horizon in the Southern District of Florida over the same claims-processing practices.
Because that case, Love v. Horizon Blue Cross and Blue Shield Association, 03-cv-21296, settled on similar terms, the Sutter reforms added nothing of value, the objectors contended.
Bernstein had refused to consider Love, stating that it was not part of the remand instructions, that it could be equally argued that the Love settlement would not have been as valuable if it had not copied the Sutter terms and that considering the impact of Love could have led him to conclude that it extinguished the Sutter cause of action.
Appellate Division Judges Jose Fuentes, Ellen Koblitz and Michael Haas agreed. They also rejected the position that the objectors should have been allowed to depose Mazie and Katz in addition to questioning them at the remand hearing.
“Objectors attempt to paint the picture of class counsel obtaining undeserved fees at the expense of an undesirable settlement for the class,” the panel said, adding that money damages should not be emphasized at the expense of injunctive or declaratory relief. Without the possibility of fee shifting, lawyers might not have incentive to explore all possible forms of relief, the judges said.
Katz, the lead counsel in the case, calls the ruling “a complete vindication for what I’ve been arguing for these many years about how significant this settlement is, the benefits it provides and why we are entitled to the fees that we have requested and were awarded.”
He points out that the reforms took effect years ago and that the lawyers in Love — a “copycat case” — have been paid, while his firm not only hasn’t received its fees but has been carrying more than $600,000 in expenses going back to 2002. He blames the objectors, saying they had a “misguided” and “completely destructive” agenda.
Charles Gormally, of Brach Eichler in Roseland, who represents nine of the medical societies, terms the settlement one “with no specific value to any of the class members but substantial dollar value to the attorneys who prosecuted the case.”
He also points out that the settlement did nothing to address the delayed payments, though Waters, the plaintiffs’ expert, found they caused the class almost half a million dollars in damages.
Gormally says he is considering an appeal. There is a body of law suggesting that when class members don’t get ascertainable benefits but their lawyers do, there is a danger of collusive behavior and “that’s the thing the Supreme Court might be interested in getting a look at.”
Neil Prupis of West Orange’s Lampf, Lipkind, Prupis & Petigrow, the lawyer for three objectors, says he will probably seek certification.
Horizon’s lawyers were John Murdock of Benton Potter & Murdock in Falls Church, Va., and Maxine Neuhauser of Epstein Becker & Green in Newark.
Murdock referred a request for comment to the company. Spokesman Thomas Vincz said, “Horizon is pleased that the Appellate Division has found the settlement reached between Horizon and the plaintiff physician class in the Sutter litigation to be a fair, reasonable and mutually agreeable resolution to the litigation. The settlement included a wide range of business practice reforms by Horizon, which Horizon has faithfully implemented in accordance with the terms of the settlement. Horizon has always worked with the provider community and our view is that the settlement will further that working relationship.”